BBBY’s Weak Q2 Fiscal 2018 Earnings Lower Its Valuation Multiple



Valuation multiple

Valuation multiples help investors compare companies with similar business models. Of all the valuation multiples, we’ve opted for the forward PE multiple due to the high visibility in Bed Bath and Beyond’s (BBBY) earnings. The forward PE multiple is calculated by dividing the company’s stock price from analysts’ earnings estimates for the next four quarters.

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BBBY’s forward PE multiple

The lower-than-expected fiscal second-quarter results, and the lowering of sales and EPS guidance, have led to a fall in the company’s stock price and valuation multiple. As of September 26, BBBY was trading at a forward PE multiple of 7.1x, compared to 8.9x before the announcement of its fiscal second-quarter earnings.

From the above graph, you can see that BBBY is trading at a discount to its peers. The negative SSSG (same-store sales growth) and declining margin lowered the company’s valuation multiple. Peers Williams-Sonoma (WSM) and RH (RH) were trading at forward PE multiples of 14.7x and 16.8x, respectively.

For the next four quarters, analysts expect BBBY’s EPS to fall 18.0%, which could have been factored into the company’s current stock price. If the company posts earnings lower than analysts’ expectations, the selling pressure could bring its stock price and valuation multiple down.

Next in this series, we’ll look at analysts’ recommendations.


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